Court documents reveal that the FTX co-founder is seeking access to a $10 million insurance plan to cover his attorney’s fees. FTX’s unsecured debtors and creditors have opposed Sam Bankman-Fried’s application, arguing that every dollar spent defending him is “one less dollar” available to cover debtors’ losses.
FTX’s unsecured debtors and creditors oppose Sam Bankman-Fried’s D&O funding request
Sam Bankman-Fried (SBF), former CEO of FTX, is seeking access to a $10 million legal insurance fund to cover his defense expenses. The filing notes that FTX’s $10 million director and officer (D&O) insurance policy covers individuals who are “legally obligated to pay by reason of whichever claim comes first.” However, FTX’s debtors and the unsecured creditors’ committee have criticized SBF’s request, arguing that granting it access to insurance funds would harm debtors and cause “material damage”.
“Thus, for every dollar extended by the insurer to Mr. Bankman-Fried’s defense costs, there is one dollar less to pay for the covered losses of the WRS debtors,” the debtors state.
The debtors emphasize that the insurance policy excludes claims arising from “violations of securities laws, violations of money laundering laws, and any intentional or fraudulent act or omission.” The lawyers explain that the D&O policy belongs to the debtors’ estate and therefore the court should not grant Sam Bankman-Fried unlimited access to it.
Instead, the debtors believe the court should require SBF to adhere to the bankruptcy court’s 2016 set-off rules. Although SBF argues that exhausting the D&O policy would not harm debtors’ assets, debtors and unsecured creditors strongly disagree, stating that this statement is “totally incorrect”.
The court filing adds:
Mr. Bankman-Fried is also wrong in stating that the coverage of the debtors’ estate is ‘hypothetical or speculative’ and that the debtors ‘have no current contractual interest in the proceeds of the D&O policies’. As noted above, the Debtors have retained a group of attorneys to represent certain current or former employees of the Debtors, whose fees are an insurable expense.
The recent objections to SBF’s request for D&O funds are the result of allegations that it has been using Alameda funds to cover its legal defense expenses. According to sources cited by Forbes, SBF is allegedly using a $10 million gift he gave to his father in 2021 to pay for his white-collar legal team.
Do you think Sam Bankman-Fried should have access to the $10 million statutory insurance fund for his defense costs, or should the court require him to comply with the bankruptcy court’s 2016 compensation rules? Share your thoughts in the comments below.
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